Whether Tax Information Exchange Can Reduce Cross-border Tax Evasion Through Tax Havens

With“Belt and Road Portal”to promote,China's going out enterprises and foreign direct investment experience rapid growth.At the same time,China's enterprises using tax havens to implement cross-border tax avoidance has also attracted the attention of the government.In order to safeguard the national tax benefits and prevent tax base erosion and profit shifting,recently,Chinese government has participated in international tax cooperation actively.Tax information exchange is the most important part of the cooperation.At present,China has signed tax information exchange agreements("TIEAs")with 10 tax havens,and joined The Multilateral Convention on Mutual Administrative Assistance in Tax Matters,and Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information.Although the rapid development of practice,the empirical study of the effect of information exchange on tax avoidance is quite lacking.In this paper,in order to study the anti-tax avoidance effect of tax information exchange,I treated TIE As which China sign with 10 tax havens came into effect in 2011-2015 as an external shock,and use data of 2009-2015 China's listed companies,which set up subsidiaries in the tax havens,to combine a fixed effect panel model.I separated the sample into two groups,the subsidiary companies located in the tax havens which signed TIEAs with China as an experimental group,and the others as control group.Then I employed a different-in-different estimation to identify the effect of TIEAs.The empirical result shows that the effect tax rate of the experimental group is significantly increased by 1.82%-1.84%compared with the control group after the TIEAs come into effect.TIEAs can reduce the tax avoidance,but the effect is limited.I also conducted falsification test to make outcome reasonable.In addition,in order to test the impact of TIEAs on the cross-border tax avoidance through export channel,I separated the samples into two groups according to whether there are export businesses,I found that after TIEAs came into effect,effect tax rate of companies with export business increased significantly by 1.94%,but the others did not improve.The anti-tax avoidance effect of TIEAs is obvious when companies use transfer of pricing channel to shift profit.This paper also analyzes that the main reasons for the limited effect of China's TIEAs:First,the bilateral tax information exchange agreements may exist "third country problem".Second,the domestic legal system is imperfect.Third,the working mechanism needs further improvement.These findings suggest that:establishing a sound domestic legal system and improving the working mechanism of tax information exchange is meaningful.